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On the measurement of plutonomy

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Abstract

Recently, a lot of attention is given to income variations occurring at the top of the income distribution. “What happens to the top 1 %?” is a question of crucial importance on the political level (Occupy Wall Street Movement) as well as on income inequality measurement level. Despite this increased interest, there is no rigorous measurement framework available in the literature for the measurement of plutonomy or “what happens to the top 1 %”. To fill this gap, this paper proposes a simple framework for the measurement of plutonomy. It exposes the ethical principles underlying plutonomy indices and develops restricted Lorenz dominance conditions that produce robust orderings of plutonomy between income distributions. Finally, the paper offers a brief empirical illustration using the World Top Incomes Database.

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Notes

  1. See Atkinson and Piketty (2007) and Leigh (2009) for a complete literature review on this topic.

  2. A plutonomy index will give a synthetic picture of the structure of the income distribution for the top \(x\,\%\) of the income distribution.

  3. Note that there is a precious body of literature that focuses on complete axiomatisation of indices. While complete axiomatisation has its merits it imposes more restrictions on the indices.

  4. It is important to mention that Bazen and Moyes (2012) used survival functions and a generalized version of the initial Lorenz curve in the context of elitism.

  5. It is important to note that Varian’s notion of envy and “envy-freeness” is defined at the individual level and in the space of consumption bundles. It was then extended to include non transferable resources such as health and talent by Fleurbaey (1994) and Fleurbaey and Manniquet (1996, 1997). However, no extensions were made to account for envy at the group level.

  6. In a more general perspective, Fishburn and Willig (1984) proposed a class of Generalized Transfer Principles that states that as the order of normative principle increases, the weight that is associated to transfers in the bottom of the income distribution increases. Following Aaberge (2009) and Makdissi and Mussard (2008), we can also adapt these principles to our measurement framework, for more details see Makdissi and Yazbeck (2012).

  7. This database can be found at http://g-mond.parisschoolofeconomics.eu/topincomes/. This website offers information at some quantiles \(p_1=0.0001\), \(p_2=0.0005\), \(p_3=0.001\), \(p_4=0.005\), \(p_5=0.01\), \(p_6=0.05\) and \(p_7=0.1\). We have used this information to produce the results of this empirical illustration. Linear interpolation has been used to produce the \(\Lambda \) curves.

  8. There is one particular result from Saez and Veall (2005) that is relevant to this discussion. They point to the fact that the French-speaking community in the province of Quebec, Canada, experience a lower increase in \(S(\Phi ,0.01)\) than the rest of the Canadian population. The author hints that this may be caused by a language barrier to migration that decreases the menace of brain drain to the US.

  9. We were constrained by the Canadian Longitudinal Administrative Data bank for which The World Top Income database has no information prior to 1982 and after 2007.

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Acknowledgments

We thank Marc Fleurbaey and two anonymous referees for their useful comments. We also thank Jonno Haisken-DeNew, Paul Frijters, Simon Grant, Jeffrey Kline, Linda Marchese, Kevin Moran and John Quiggin for useful discussions.

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Makdissi, P., Yazbeck, M. On the measurement of plutonomy. Soc Choice Welf 44, 703–717 (2015). https://doi.org/10.1007/s00355-014-0857-0

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